Question

Hollingsworth Company issues a $25,000, 3-year note to Welton Corp. on January 1, 2014. The stated rate and the market rate are both 10%.

a. What is the journal entry to record the issuance of the note?
b. What is the journal entry to accrue the interest payable on Dec. 31, 2014?

Answer 1

The journal entry to record the issuance of the note is Notes Payable $25,000 and Cash $25,000. The journal entry to accrue the interest payable on Dec. 31, 2014 is Interest Expense $2,500 and Interest Payable $2,500.

Step-by-step explanation:

a. The journal entry to record the issuance of the note would be:

Jan 1, 2014

Notes Payable......$25,000

Cash............................$25,000

b. The journal entry to accrue the interest payable on Dec. 31, 2014 would be:

Dec 31, 2014

Interest Expense........$2,500

Interest Payable.............$2,500